FDIC Insurance Fund Snaps Back from 2009 Deficit

The Federal Deposit Insurance Corp. fund guaranteeing customer deposits in U.S. banks is rebuilding at a faster pace as the banking industry puts widespread failures behind it, the agency said in a report.

The federal backstop, funded by assessments on banks, was at $33 billion at the end of 2012, up from a deficit of $20.9 billion at the end of 2009 as the credit crisis caused banks to fail. The FDIC predicted it will spend $5 billion to cover bank shutdowns in the next five years, a projection that has been rapidly declining as the industry improves, according to a report issued Thursday updating the fund’s health.

“Notwithstanding the improvement, we still have a long way to go,” said FDIC Chairman Martin Gruenberg.

The fund returned to a positive balance in 2011, and it anticipates assessments on banks to drop about $1.4 billion from 2012 to about $11 billion this year. In June, the agency will also be paying back $5.7 billion in cash to banks -- the remaining balance of pre-payments the FDIC requested three years ago to ensure it had enough cash on hand to handle the rush of failures.

The fund still has less than its required reserve ratio of 1.15 percent of the deposits it insures, and the FDIC expects to reach that goal by 2018. The reserve ratio was at 0.45 percent at the end of 2012, according to the agency. The Dodd-Frank Act of 2010 required the FDIC to increase the target ratio even higher to 1.35 percent by Sept. 30, 2020.

“I think the estimates of $5 billion in losses over the next four or five years is still very, very conservative,” said James Chessen, chief economist for the American Bankers Association. “It’s a much stronger industry today than it was before. The likelihood that you’ll have another wave of failures is very small now.”

The April 5 failure of Gold Canyon Bank in Gold Canyon, Arizona, was the most recent this year’s five bank failures. The FDIC estimated its cost to the fund will be $11.2 million.

The Federal Deposit Insurance Corp. fund guaranteeing customer deposits in U.S. banks is rebuilding at a faster pace as the banking industry puts widespread failures behind it, the agency said in a report.